Question

The city of New Orleans establishes a print shop that provides services to other departments that are accounted for in its general fund. During its first year of operations the print shop engages in the following transactions:

It purchases equipment at a cost of $50 million and issues long-term notes for the purchase price. The useful life of the equipment is eight years, with no residual value.

It purchases supplies at a cost of $5 million. Of these it uses $3 million. In its governmental funds, the district accounts for supplies on a purchase basis.

It incurs $15 million in operating costs.

It bills other departments for $25 million.

For purposes of external reporting, city officials are considering two options:

(1)Account for the print shop in an internal service fund

(2)Account for the print shop in the general fund

Question to answer:

1)Record the transaction for the print shop assuming (1) the city selected the first option and (2) the city selected the second option.

Answer 1

1)	Amount in Million $
Particulars	Debit	Credit
Equipment	50
Notes Payable		50
Depreciation	6.25
Accumulated Depreciation		6.25
Printing supplies expense	5
Cash		5
Operating Cost Expenses	15
Cash		15
Due from State Departments	25
Revenues		25

(2) General Fund	Amount in Million $
PARTICULARS	Debit	Credit
Equipment	50
Notes Payable		50
No Entry for Depreciation
Expenditures	5
Vouchers Payable		5
Expenditures	15
Vouchers Payable		15
Receivables	25
Revenues		25